Flooding: what is insured?

Virtually all insurers cover damage to homes caused by extreme rainfall (direct precipitation), overflowing streams and, more recently, the failure of secondary water defenses (“local floods”).
Also, damage caused, for example, by the failure of utilities, such as electricity, is generally covered under the policy terms.
Most business policies now also cover the above causes of damage, but insuring risks for large companies and institutions is often customized.

Fire insurance (scholarship policy)

Large companies and institutions insure themselves through a so-called “exchange policy. In 2021, the VNAB presented new model terms and conditions for fire insurance: the VNAB Modular Terms and Conditions for Business and Property Damage Insurance 2021 (“VMZB 2021”). This is a basic policy under which coverage is provided for both property damage and business interruption, as a successor to NBZB 2006, widely used in the exhibition industry. The terms and conditions (VMZB 2021) stipulate that cover does not include “property damage caused by flooding as a result of the collapse or overflow of dikes, quays, locks, banks or other water barriers, regardless of whether this flooding was caused by a storm. This exclusion does not apply to fire or explosion caused by flooding.” Among other things, the climate scenarios released by the KNMI show the importance of providing insurance solutions for flood risks throughout the Netherlands.

Model clause

To provide these insurance solutions for flood risks, a model clause has been developed.
With the model clause “Flooding of non-primary flood defenses for locations within the Netherlands (2022),” the terms and conditions of the exchange policy can be extended to include flooding of so-called secondary flood defenses: small rivers and streams, the local flood risk.
With this, insurers are taking an important step in insuring flood risks in the (large) business market.
In accordance with the model clause, this coverage applies only to Module 1 – Property damage and not to Module 2 – Business damage.

Coverage

The first stock exchange insurers have now indicated their willingness to insure this risk.
Most insurers currently offer coverage up to a maximum of EUR 1,000,000 on all locations insured under a policy, provided it is within the Netherlands.
Some insurers may charge a premium surcharge for this, based on individual assessment and exposure.
In the Dutch co-insurance market, each insurer has its own solution within its own available capacity and capabilities.
Insurers’ policy on insuring this risk will always be adjusted to market conditions.
At a later stage, it is expected that additional capacity, against premium payment, can be offered for this insured peril.
In short: with a scholarship policy with the VNAB’s supplementary model clause, a customized solution is available for entrepreneurs to insure against flooding of so-called secondary flood defenses: the local flood risk. Sources consulted: VNAB and Association of Insurers.
If you would like to discuss this further, please contact your account manager or the specialists at Kröller Boom.